Does Familiarity Breed Alternative Investment? Evidence from Corporate Defined Benefit Pension Plans

60 Pages Posted: 20 Jul 2014 Last revised: 16 Apr 2020

See all articles by Christina Atanasova

Christina Atanasova

Simon Fraser University (SFU)

Gilles Chemla

Imperial College Business School; CNRS ; Centre for Economic Policy Research (CEPR)

Date Written: May 24, 2018

Abstract

Defined benefit pension plans backed by firms with high R&D expenditures and high land and buildings (L&B) holdings exhibit high private equity and real estate investment, respectively. Within these asset classes, plans with R&D (L&B) intensive sponsoring firms overweigh venture capital (opportunistic real estate). Pension funds with each of these alternative investment tilts underperform other plans by up to 200 basis points. We find evidence supporting the barrier to entry and the risk management hypotheses, but no evidence consistent with the informational advantage, risk shifting, and hedging hypotheses. We conduct several tests that appear to validate a familiarity bias. This familiarity bias in asset allocation to alternative assets reduces corporate DB pension fund resources by about $1.4 billion a year.

Keywords: pension plans, sponsor, R&D, L&B, alternative assets, private equity, real estate, tilt, information, spillover, familiarity

JEL Classification: G11, G23, G31, G32

Suggested Citation

Atanasova, Christina and Chemla, Gilles, Does Familiarity Breed Alternative Investment? Evidence from Corporate Defined Benefit Pension Plans (May 24, 2018). Available at SSRN: https://ssrn.com/abstract=2468290 or http://dx.doi.org/10.2139/ssrn.2468290

Christina Atanasova

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Gilles Chemla (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 207 594 9161 (Phone)
+44 207 594 9210 (Fax)

CNRS ( email )

Dauphine Recherches en Management
Place du Marechal de Lattre de Tassigny
Paris, 75016
France
331 44054970 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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